Students ride high on Wall St.
theglobe.com goes public four years after its founding in a Cornell dorm room.

By Rebecca James
[as reported in 11/29/98 Syracuse Herald American, page one]

Help came from investors

Two 24-year-old Cornell University graduates ventured onto Wall Street Nov. 13 to see if the world was interested in the Internet company they dreamed up in a dorm room four years ago.

They ended the day worth about $50 million each.

The company - theglobe.com - set a record for a first-day price gain, in addition to making Todd Krizelman and Stephan Paternot rich.

Just before the public was able to buy the stock two weeks ago, company insiders, officers and other select investors had the chance to buy a half-million shares at $9 per share. That's the price investment bankers agreed to pay to underwrite the 3.1 million shares being offered.

But when the stock became available to the public on the Nasdaq exchange, trading started at $87 a share.

The price soared as high as $97 before closing its first day at $63.50 - making it the most successful initial public offering of all time.

By last Friday, the price for the stock with the ticker symbol TGLO had dipped to about $40, leaving Krizelman (754,943 shares) and Paternot (807,499 shares) worth only about $30 million each.

Still, that's not bad for two young men with the foresight to draft a business plan taking advantage of the World Wide Web back when many of their peers were still trying to decide on a major.

"We felt the 'Net moving at light speed, and we were doing our best to keep up with that," Paternot said last week.

Krizelman and Paternot almost became college dropouts, but it turns out that earning the admiration of Cornell President Hunter Rawlings paid off.

In what may set a new standard for using Cornell connections, Rawlings introduced the two to another Cornell alumnus. Michael Egan, former chairman of Alamo Rent-A-Car, pumped $20 million into the fledgling business in 1997, which helped transform the company from a 20-employee operation to a Wall Street darling.

The investor frenzy over theglobe.com and other Internet-based stocks led to debate in recent weeks on whether the stocks are overrated. Some analysts question business plans that depend on selling advertising on Web sites. But Wall Street's endorsement of theglobe.com is just the latest confirmation that, so far, Krizelman and Paternot's insight into the Internet - and their timing - are hard to beat.

Their Web site, which went on-line in April 1995, is one of the fastest growing sites on the Internet with 7.5 million users in October. It offers computer users tools to create their own Web sites and runs on-line discussions on subjects from "the funny things our pets do" to spirited arguments over which pro wrestlers deserve respect.

But the selling point for investors and advertisers has always been the way Krizelman and Paternot gather data on who is visiting their site, analyze it and use that information to sell ads.

Krizelman, a biology major from California, and Paternot, a computer science and business major from Europe, met at Cornell and joked about starting a business. But when they were juniors they got serious when they saw the Internet starting to take off.

During Christmas break, Krizelman and Paternot went home and raised $15,000 from family and friends to buy the equipment they needed. And a few months later, the Web site was up and running. A month later, they officially founded the business.

But starting a business and being a student are not compatible.

The two thought about dropping out constantly.

"We really skipped out of classes a lot," Paternot said. "Todd and I at one point thought we wouldn't graduate. We studied and got the grades, but it was a painful process."

In 1996, just before Krizelman and Paternot graduated, the business employed 17 people. The average age of the employees was 22 and Krizelman and Paternot used morale-building tactics such as springing for pizza when they asked the staff to work late.

Theglobe.com moved to New York City in 1997, although that summer they still had only about 20 employees. By that point, Krizelman and Paternot had raised $2 million from private investors.

Then they met Michael Egan.

Rawlings mentioned Krizelman and Paternot when he was visiting Egan at his home in Florida. Egan, who graduated from Cornell's School of Hotel Administration in 1962 and has kept close ties to Cornell, told Rawlings he was interested in starting up a company on the Internet.

"I said, 'Well, let me tell you about a brand new company that a couple of Cornell students have started,' " Rawlings said. "He listened and said he would like to meet Todd and Stephan. So I arranged lunch for them here at Cornell. As they say, the rest is history."

The company has changed considerably since then. It now employs 115.

Krizelman and Paternot brought in more senior managers this year, even though it meant paying them considerably more than the $125,000 that each co-CEO earns.

Their chief operating officer, for instance, came on board for a $250,000 salary. Dean Daniels, a 41-year-old who was general manager of CBS's Internet operation, was also promised a $50,000 annual bonus and plenty of stock options.

"The company itself is more professional and the average age of the company is older now," Paternot said. "But we've managed to maintain the same culture we had when we started."

"We still walk around without wearing suits," Krizelman said.

A bigger sales and marketing staff helped theglobe.com sell more ads on their Web site. In recent months, they had about 110 advertisers.

Egan's cash infusion also helped pay for an extensive advertising campaign, aimed at boosting traffic to the Web site.

All this made a difference. The company, which brought in less than $1 million in revenue in 1997, generated $2.7 million in revenue for the first nine months of 1998.

But theglobe.com also had a net loss of $11.5 million during that same time and plenty of people have wondered why investors poured millions into a company that said in its prospectus that it "anticipates losses and negative operating cash flow for the foreseeable future."

Theglobe.com didn't even seem bullish on the stock market initially. It filed to go public in July, but delayed its initial public offering when the market for new stock issues seemed weak.

But when demand for Internet stocks seemed hot again, theglobe.com went public. And with a first-day gain of 606 percent, theglobe.com buyers made the reaction to EarthWeb's IPO seem conservative.

This demand for untested high-tech stocks was met with plenty of skepticism.

"Investors ought to be committed," read the headline on a New York Post column about theglobe.com.

The folks back at Cornell wouldn't be surprised if theglobe.com prospers, although they say money isn't everything.

"If they called me up and said, 'Dan, we made 10 million yesterday, but we hate what we're doing,' I'd feel somewhat disappointed," said Dan Jenkins, assistant director of undergraduate programs in computer science. "It's really about dreams and what they're able to do with their abilities."

Sunday, November 29, 1998